Federal Bank's bottom line was impacted largely by two events i) One big corporate account slipped (Rs. 134Cr) and ii) Treasury provision Rs. 49Cr. The Bank reported PAT of Rs. 141Cr vs Rs. 220Cr same time last year. It reported a NII growth of 7.2% YoY which stood at Rs. 605Cr vs Rs. 564Cr in Q1 FY15 where as profit prior to provisioning was up 4.5% YoY at Rs. 367Cr. Provisions for the quarter were higher at Rs. 153Cr vs Rs. 40Cr QoQ and Rs. 22Cr YoY. The bank's SME and retail book will continue to drive the growth; further aided by corporate book. We believe Federal Bank is best placed to improve its return ratios with margin improvement, CASA traction and growth in core fee income as the levers going forward. At CMP, the stock is trading at 1.22x and 1.11x FY16E and FY17E P/Adj BVPS and 10.19x and 9.23x FY16E and FY17E P/E respectively. We upgrade the stock to BUY with a target price of Rs. 75 (1.4x FY17E ABV); an upside of 26% from current levels.
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